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it took the company almost two decades to finish the job. Cork and com-
pany started cleaning house by closing the Corky™s line in 1977, just 10
years into the venture, and then let the Globe chain go in 1978, when they
discovered the division was creating unwanted competition for Walgreens
stores in the area. The directors ended the partnership with the Schnucks
chain in 1981, the same year they closed the Walgreens optical centers,
and dropped Sanborns in 1984 after the dollar fell so dramatically relative
to the peso that doing business in Mexico no longer made sound business
sense. Finally, Walgreens got out of the food business for good in 1988,
when it closed both Robin Hood™s and Wag™s, selling the latter™s remaining
87 posts to the Marriott Corporation. Bottom line, in a mere 11 years,
Walgreens had divested itself of seven substantial divisions.35
Walgreens wasn™t afraid to sell off franchises that cut closer to the
bone”and the heart. When superpremium ice creams like H¤agen-Dazs
and Ben & Jerry™s came out in the 1970s, Walgreens realized its store-
brand ice cream was no longer a cutting-edge, luxury product and closed
its eight ice cream manufacturing plants and, with them, the coffee
brand, too, because the roasting operation operated out of one of the ice
cream plants. The fact that Walgreens™ ice cream had been introduced by
Cork Walgreen™s grandfather in 1916 and scooped into a glass of choco-
late malt by Pop Coulson in 1922 to invent the milk shake didn™t deter
the grandson for a second. For him, the decision was surprisingly easy, ut-
terly bereft of sentiment: Making ice cream and processing coffee no
longer added up.
The executive committee just as coolly decided that the Agency sys-
tem, despite efforts to build it up to its original robustness, had to go as
well. Even John Rubino, the man responsible for its brief renaissance in
the 1970s, described it as a “difficult but inevitable decision,” a victim of
its own success. “Agency growth was placing more demands on corporate




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reinventing the corporation 185

warehousing and delivery at the same time the company™s own growth rate
was beginning its meteoric rise.”36
“At one time, we had 2,000 Agency stores,” Cork said. “We just kept
shrinking the number down. And the company couldn™t grow because the
Agencies were in the markets we wanted to enter; but they were old,
small, slow, high-priced, dirty in some cases. So we just shut down the
whole division.”37
What™s noteworthy about this tidal wave of divestments is that many of
these divisions were actually making money when Walgreens closed or
sold them. Perhaps most remarkable, however, was Cork™s determination
to put aside family feelings to do what was best for the company™s future.
An author once observed that when it comes time to edit a piece of liter-
ature, all writers have difficulty cutting their favorite lines, even if the lim-
itations of space and scope require it. But, she advised, if you want the
piece to work, “You have to kill off your little darlings.”
Of course, that™s easier said than done, especially when it involves com-
ponents for which employees and customers alike harbor strong affection
and when cutting them would require releasing or retraining hundreds or
thousands of employees. This is why most companies hang on to divisions
and products and policies long after their usefulness has worn out, in much
the same way we hang on to favorite shirts and old hats long after they™ve
become embarrassing to everyone but us.
Not so Walgreens. When it came time to make tough decisions on the
fate of the food service division, Cork and company were courageously ob-
jective in making their assessment”even though the food service division
brought in a third of company profits for most of the twentieth century
and still accounted for $100 million a year in gross revenue well into the
1970s; even though Cork™s grandmother started Walgreens™ food service
back in 1910, when she made sandwiches and soups and pies for her son
Chuck to deliver to Charles™s first store on Cottage Grove; and even
though Walgreens counters and booths and tables gave the chain an in-
delible identity as America™s meeting place for generations of families,
couples, kids, and even veterans during the war years.




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186 america™s corner s tore

Despite all that, Cork, Canning, and company compared the stores they
had to the stores of the future and decided that food service had to go. As
Jim Collins wrote in the Harvard Business Review in 2001, a

good example of iron-willed leadership comes from Charles R.
“Cork” Walgreen III, who transformed dowdy Walgreens into a com-
pany that outperformed the stock market 16:1 from its transition in
1975 to 2000. After years of dialogue and debate with his executive
team about what to do with Walgreens food-service operations, this
CEO sensed the team had finally reached a watershed: the company™s
brightest future lay in convenient drug stores, not in food service.
Dan Jorndt, who succeeded Walgreen in 1998 as CEO, describes
what happened next. “Cork said at one of our planning committee
meetings, ˜Okay, now I am going to draw a line in the sand. We are
going to be out of the restaurant business completely in five years.™ At
the time, we had more than 500 restaurants. You could have heard a
pin drop. He said, ˜I want to let everybody know the clock is ticking.™
“Six months later,” Jorndt continued, “we were at our next plan-
ning committee meeting and someone mentioned just in passing that
we had only five years to be out of the restaurant business. Cork was
not a real vociferous fellow. He sort of tapped on the table and said,
˜Listen . . . I said you had five years six months ago. Now you™ve got
four and a half years.™
“Well, the next day things really clicked into gear for winding
down our restaurant business. Cork never wavered. He never
doubted. He never second-guessed.”38

When asked about the story, Cork recalled his cabinet™s response, with
a chuckle. “They were, ˜Whoa! Wake up call.™”39
Cork can laugh now, but his people weren™t laughing then. They were
rushing back to their offices, getting on the phone, and making it happen.
They did; when Cork™s five-year deadline was reached, Walgreens was of-
ficially out of the food business.




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reinventing the corporation 187

What™s striking, however, was Cork™s utter lack of reservation. When
asked if he had any hesitation about the decision, he replied, “No, not re-
ally.” Nor did he talk with his father before cutting loose the beloved food
division. “I never consulted with my dad on any decisions”not a one”
because I was afraid he™d disagree with me!”40
“Cork is a shy man, smart, with a photographic memory and a laser-
sharp instinct for excellence,” Jorndt said. “His standards were very high,
and everybody wanted to rise to those standards. Cork was not a hands-
on CEO, but he made it a point to know everything that was going on in
the company. He made the decision to get out of all our peripheral busi-
ness, and he was single-minded about it. It took us 15 years, but it was a
steady march.”41



the systems behind the smiles

Disciplined employees, clean stores, and a focused strategy comprised the
foundation for Walgreens™ turnaround; but if the management team
stopped there, no one would be writing books about the company™s amaz-
ing rise to the top of U.S. businesses.
In his acclaimed 1990 book, Customers for Life, Carl Sewell, the nation™s
top luxury-car dealer, explained how he built a quarter-billion dollar busi-
ness by following a few straightforward principles. In Chapter Five, for ex-
ample, titled “Systems, Not Smiles,” Sewell said that the warm, fuzzy sides
of customer service”saying please and thank you, for starters”are nice
and important but only the icing on the cake, not the cake itself.
Customer service requires doing the job right the first time, and having a
plan in place to fix things fast when you don™t. “Having systems that allow
you to do both those things,” he wrote, “are more important than all the
warm and fuzzy feelings in the world. . . . What™s needed in restaurants, car
dealerships, department stores, and every place else is systems”not just
smiles”that guarantee good service.”42
In Walgreens™ case, “good systems” includes modern accounting




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188 america™s corner s tore

methods, efficient distribution designs, and cutting-edge computer net-
works to ensure that the products that customers want are there when
they want them.
Shortly after Cork took over Walgreens, he assessed the company™s
health and determined they had a strong need to improve cash flow, espe-
cially during an inflationary period. Company chief financial officer
(CFO) Chuck Hunter had the answer: Switch from FIFO accounting to
LIFO accounting”or from “First In, First Out” to “Last In, First Out.” In a
nutshell, it™s the difference between an escalator and an elevator. On an es-
calator, the first people to step on are the first people to step off. That™s
“First In, First Out.” As people pile into an elevator, however, the last ones
who squeeze in are the first ones to get out (assuming all are going to the
same floor, of course). That™s “Last In, First Out.”
Changing the company™s accounting system from FIFO to LIFO would
minimize reported earnings because they would be selling the most re-
cent”and therefore highest priced”inventory first, thus keeping profits
down, and taxes down with them. That, in turn, increased cash flow,
which decreased loan liabilities and interest expenses.
Because no other drug chain had considered using LIFO accounting,
Cork™s executive team checked out every angle with everyone who might
be affected”including creditors, auditors, and tax advisors”before finally
making the move. The company™s calculated gamble paid off, with the
stock price rising from $10 to $13 in late 1975.
Cork Walgreen gives all the credit to Chuck Hunter, “really a very for-
ward thinking guy,” Cork said. “He was the only one [on the executive
board] who was there when I came in. The rest of the guys were my guys.
But he was terrific. LIFO was really his decision.”43 Hunter did for
Walgreens™ accounting what Robert Knight had done a half century ear-
lier: He brought the company™s financial systems into the modern era and
forced everyone else to follow.
After Walgreens successfully instituted the LIFO system, it decided to
fix its distribution system. When it examined the setup carefully, the exec-
utive committee didn™t like what it saw. “Our physical distribution was ter-




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reinventing the corporation 189

rible and old fashioned,” Cork says today. “It sometimes took two weeks to
get an item you™d ordered, which is death in this business. So we hired a
guy from Uniroyal, John Brown, who did a great job and got us going. We
rebuilt the entire system. So now we are probably on the leading edge in
that area, too.”44
“Retail is very Darwinian, I always say,” Jorndt remarked. “It™s always
survival of the fittest, and the fittest are the ones that serve the customers
best. The distribution system we started to build in the [1980s] and con-
tinue to expand helps us do just that.”45



walgreens goes high-tech

Perhaps nothing demonstrates Walgreens™ determination to evolve from a
dowdy midcentury drugstore chain to a high-tech retailer better than its
commitment to cutting-edge computer technology.
At the dawn of the Cork Era, “Computers weren™t used much,” he said.
“Even for payroll, for instance, we used to have to take the cash out of the
drawers in each store, count it out, and put it in envelopes for each indi-
vidual employee and hand them out. I think our people were generally
very honest, but there were probably some temptations”˜One for me, two
for me!™”and this was in the 1960s!”46
After getting computers installed in every store, which numbered about
400 or so when Cork™s tenure began, Chuck Hunter, the CFO behind the
FIFO-LIFO switch, and John Brown tried to create something spectacular:
Walgreens™ Intercom system, which, if it worked, would prove as impor-
tant to the company as self-service.
Hunter, Jorndt said, “had the vision of an online pharmacy, which be-
came Intercom. He could see there would be mountains of paperwork to
manage third-party prescriptions [thanks to the growing number of HMOs
and the like], and we needed a system to handle that.”
Although intended to process insurance paperwork more efficiently,
“Ultimately,” Jorndt said, “Intercom™s biggest advantage was as a cus-




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tomer service tool.” Just as FedEx was founded to handle the Federal
Reserve™s overnight delivery needs (thus the name FedEx) but ended up
serving a far broader function for millions of people sending in bills, col-
lege applications, and office documents at the last minute, Intercom
proved to be even more beneficial in serving everyday customers than
health care providers.47
Hunter™s vision was ambitious but elegant. He imagined a system that
would link all Walgreens pharmacies to a central data bank, and also
to each other, through computer servers and satellites”a pharma-
ceutical Internet, essentially, before the term “Internet” even existed”
thereby allowing pharmacists to pull up the histories of Walgreens cus-
tomers anywhere in the country, even if the customers had just moved,
were on vacation, or simply found themselves across town from their
usual store.
Like a lot of good ideas, however, this one ran into trouble right out of
the gate. In 1976, Walgreens piloted two versions of the program in St.
Louis and Des Moines, Iowa. The first version was based on the United
Airlines system of tracking passengers on its flights, substituting Wal-
greens™ stores for United™s planes and Walgreens™ customers and their pre-
scriptions for the passengers. The other version simply didn™t work.
“It just didn™t have the turnaround we needed,” Cork said. “They were
going to stop it, and I said, ˜No, you can™t do that.™ I didn™t want to pull it
out after we™d educated our customers to use it. And so we had two differ-
ent systems going on at once. We really bet the whole company on it. We
put millions into it, and we were not making that much then.”48
So if Intercom failed? “Then we™d be in big trouble!” he said with a
laugh. “I don™t know if it would have sunk the company, but it would™ve
sent millions down the drain, and the future of Walgreens would have
been a lot different. There™s no way we could grow like we are today. But
we knew if this thing worked it would be fantastic.” Following Intercom™s
“false start,” Walgreens committed millions more to the project; and after
years of tedious debugging, they tried it again, “as we held our collective

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